Tuesday, February 21, 2012

Big rich Texas

Via Paul Caron comes this article (free registration required), detailing the grotesque and amusing spectacle in Austin, where former Dean Larry Sager got fired recently for paying himself $500,000 not to quit his job. (This is unfair. It would be more accurate to say that he got fired for failing to pay off enough faculty to keep the fact that he was paying himself a half million bucks to remain "loyal" to his institution sufficiently on the down low to avoid a public scandal).

There's a lot here, as litigators say, and I'll try to touch on some of it without losing what at this hour is still a hypothetical breakfast.

(1) The sums involved are rather startling. One nice thing about lawsuits is that they can reveal all sorts of fascinating pieces of information. According to the available public records, the salaries of the 25 highest-paid members of the UT law faculty last year ran from $272K to $217K. This turns out to be a significant understatement: per the documentation that emerged as a consequence of Linda Mullenix's suit and the subsequent Sager imbroglio, the actual compensation for this group ran from $352K to $281K. And it's unclear whether these fairly stupendous figures include the pro-rated annual share of the 22 "forgivable loans" totaling $4.65 million handed out by Sager to himself and others between 2007 and 2010 (A university-wide salary freeze was implemented at UT smack in the middle of this frenzy, but as many a baseball free agent has reminded us over the years, a man's got to feed his family). So it's quite possible that the real figures here actually go north of $400K.

Update: I have been reliably informed by someone who has seen the referenced documents that the quoted figures represent only base salary and summer grant money, and do not include the "forgivable loans" -- meaning that UT Law is effectively paying much of its senior faculty between $320K and $410K per year.

I imagine what's going on here is that the law school manages to hide a large piece of its faculty compensation from public scrutiny by jamming it into "research stipends" and whatnot (Update: I've now seen the referenced documents and they reveal many UT faculty are getting summer research grants between $60,000 and $90,000) in addition to these remarkably generous forgivable loans. Speaking of which . . .

(2) I can't imagine what purpose "forgivable loans" have other than hiding actual levels of compensation from (a) faculty who aren't getting them; and (b) the ever-inquisitive public at large. Such loans are taxable as ordinary income, and, as a legal matter, they aren't enforceable as quasi-retention bonuses, since per Sager's own description the loans were given out in return for "a moral commitment" not to leave UT for at least five years. A "moral commitment" is obviously not the same thing as a legally enforceable commitment. Update: A commenter explains that the "moral commitment" language is for tax purposes, to keep the payments from being treated as an immediately taxable bonus. In fact the "loans" would have to be repaid if a recipient left for any reason than a no-cause discharge.

(3) I have no basis for making any judgment regarding the merits of Mullenix's sex discrimination suit, other than to note that the fact that the overall level of compensation for UT law faculty -- and indeed for law faculty in general -- is absurdly and unjustly high does not mean that people such as Mullenix don't necessarily have a valid complaint when they point out apparent inequities within that system. In other words, that Mullinex is grotesquely overpaid relative to American university professors, or American teachers, or Americans in general, or inhabitants of the planet, does not mean that she wasn't underpaid relative to her colleagues on the UT law faculty.

In the end the significance of this kind of thing is how it reveals the extent to which legal academia is giving itself over to sheer self-dealing. Over the last seven years the UT law school's resident tuition has gone from less than $14K a year to more than $32K, while non-resident tuition has gone from 25K to $47.5K. The ultimate justification for this explosion in the cost of getting a law degree is that you have to pay your faculty literally twice as much, in real terms, as what the school's faculty was making 25 years ago (while at the same time cutting their teaching loads etc etc), in order to keep up with the Joneses. That shall we say less than compelling argument will remain tolerable to the people paying the freight (the school's students, and to a far lesser extent the state's taxpayers at public schools like UT) to the extent that they're actually getting something like a decent return on the investment they have to make to become lawyers.

But when the gap between what the professors and their graduates are getting paid gets to be too much, even law students will eventually rebel against this preposterous system.

70 comments:

Does the IRS know about this? Forgivable loans sound a lot like...um...taxable income. Also, since professors are employees of UT, they will have to remit payroll taxes as well. Not to mention the ridiculous accounting and legal fees.

Forgivable loans are used as incentives in a number of areas. There is nothing sinister about it. Look them up. Why would you assume that the people at UT would not know how to handle this for tax purposes?

Most of those "overpaid professors" could be making a lot more money if they had gone the big firm route. So it is hardly a suprise that as firm salaries have increased, so too have those of law professors. It's necessary to compete for top talent.

I have jumped through a lot of hoops to get where I am and it's not unreasonable to enjoy a reasonably comfortable life.

that's stupid. not all of them would have satayed in biglaw after 5 years even if they won the law school lottery. that's why these bums leave S&C after a year or two for the cozy confines of an ivory tower.

Professor, a decent site for public employee salaries is Collegiate Times. However, the data is usually from 2009 or 2010. Plus, many states and colleges are not included.

For those universities listed, the compensation listed is most likely not comprehensive. In contrast, on Guidestar - to look up "private non-profits" - you can view base salary, nontaxable benefits, "other" compensation, etc.

Those "professors" would not be paid $400K for producing law review articles on the role and influence of the Protestant Reformation on English common law. Likewise, they would need to work MUCH more than 4-6 hours per week, while spending their office hours online, viewing Youtube videos and reading newspapers. They would need to PRODUCE results for high-dollar clients, not useless academic drivel.

Texas has a private foundation that was set up to allow the school to compete with private law schools in hiring and retaining faculty. The funds come from alums who voluntarily give. No tax money was expended for this.

Had a lunchtime CLE and heard a litigation partner at a top 20 firm when asked a question regarding law review articles, describe law professors as: "either individuals who have never practiced law, or practiced law for just long enough to run to academia with their tail between their legs." The law professor on the panel looked stunned. He didn't say anything though. What was he going to do, write a student reviewed paper on the topic?

There are professors who have skills much in demand in other sectors but, on the whole, if you think the market for graduates is bad imaging what it is for middle aged law professors with "salary requirements" of $250K whose last experience in practice was as a 2d year biglaw associate twenty years ago and whose only other job experience is pontificating to law students six hours a week and writing opaque articles for law journals nobody reads.

From Ghostbusters (1984)Stantz (Ackroid):This is like a major disgrace. Forget MIT or Stanford now . . . they wouldn't touch us with a three-meter cattle prod.

Venkman (Murray)You're always so worried about your reputation. We don't need the university. Einstein did his best stuff while he was working as a patent clerk. They can't stop progress.

Stantz (not cheered):

Do you know what a patent clerk makes? I liked the University. They gave us money, they gave us the facilities and we didn't have to produce anthing! I've worked in the private sector. They expect results. You've never been out of college. You don't know what it's like out there.

I would honestly rather see some physics or history professor or dance instructor or, hell, college softball coach "earn" these sums. It is one category of outrage to be wildly overpaid for competent work. It is a lot worse to get rich on false pretenses and give nothing in return, either to students or the practicing bar.

Next time a law professor defends his or her salary and "forgiveable loans" based on the importance of his or her scholary production, do a Westlaw Next search on that person to find out how often and how many of his or her articles have been cited by a reviewing court or an administration agency somewhere in the nation.

I did an "All States and Federal" search of Brian Leiter and Neil Buchanan and published the results in a comment in Third Tier Reality in the February 13, 2012 entry: "Profiles in Academic $elf Intere$t and Patent Dishonesty: Neil H. Buchanan, “professor of law” at George Washington University."

There's a funny quote in the linked article from Leiter, who says he didn't leave Texas for Chicago because of money. What's funny about that is for once when somebody is saying "it wasn't about the money" it's true: Leiter is such a complete status whore that he would have taken the Chicago job if it paid half of what UT was paying him. Hell he would have taken it if his contract said he had to blow a homeless guy in Grant Park twice a week.

I read the article. This money does not come out of public funds. There is a separate private foundation that was instituted to do this. I saw an earlier article that said this was started back in the 1950s.

"I read the article. This money does not come out of public funds. There is a separate private foundation that was instituted to do this."

You're an idiot, and probably a law professors. Money is fungible, and if the "private" money is spent on this then that means "public" money will have to be spent on things that the "private" money would have otherwise been spent on.

@ 11:24 No, you are an idiot. if there was no foundation, the salaries and loans would not be paid to those people. They would get along just like everyone else who does not have a foundation to hand them money.

11:05,I think the argument is that you need the high salaries to attract them from their positions in biglaw rather than you need the high salaries to make them stay as law profs. I don't really agree with the argument since it's unlikely these profs would make partner in biglaw but just keeping things in focus.

Moron at 11:35, let me repeat until it sinks into your imebicile skull.

If private money is spent on X, that otherwise would have been spent on Y, then that means public money will have to be spent on Y, that otherwise would have not been spent at all. Thus spending private money on X drains public money just as much as would the spending of public money on X.

The real argument, if there is any, is that you need the high salaries to attract "star" faculty members from private law schools that typically pay more than public law schools. There's nothing inherently wrong with this if the money was donated for this specific purpose; it would be wrong to use the money for anything else. However, there would certainly be a problem if this pot of money was being used to reward "friends" of the dean in secret - all compensation paid to faculty members at a public school should be public knowledge, regardless of the funding source.

At 11:48 -- your argument assumes that the public money would have been spent on the faculty salaries. It would not. Yours is an argument against any directed giving to institutions. If a school has 30 million dollars to give in financial aid, and I decide to give 50 million to build a building that the school may not even require, and put my name on it, I have taken money from financial aid. No, the school will still hand out the 30 million dollars it has. Why assume it would HAVE to give more? You may want it to,you may think it would be better if they took my 50 million and applied it to financial aid, but the school does not HAVE to do that. Depending upon what I say, they cannot do that. The people who handle the financial aid fund will be ticked off because I decided to give money to something other than their department.

What you are really upset about is the use to which the foundation money was put. That may be a legitimate argument. But saying that if I choose to donate money to fund some function at my school, I am automatically taking away from some other function is not right.

The scramble for money in both BigLaw and legal academia is problematic for a very basic reason: We obtain these high salaries, not because we are so awesome (in practice or academia), but because we are a protected profession. Yes, it is possible economically for some members of a protected profession to make excess profits while others make very little or leave the field. That is what we have been doing for some time in law.

The trade restraints that protect law allow BigLaw partners to charge very high rates and to leverage the work of their associates at similarly high rates. Those costs don't come out of the pockets of client CEO's--they are passed on to ordinary consumers. So let's not get all noble about either BigLaw or law schools.

Let's think instead about why we have these restraints of trade. The only justification is that we--all of us, whether in practice or the academy--are supposed to put the clients' interests first. But by making legal education and legal services so expensive, we definitely are NOT putting the clients' interests first. We're not serving the low-income, middle-income, and small business clients who can't afford our services. And although in some sense we're serving the interests of BigLaw clients, we raise the costs of consumer goods and services every day through our high legal costs.

I believe that both practicing lawyers and educators can give high value--and that many in both categories do. But one of our first obligations should be figuring out how to educate lawyers and provide legal services in a way that society can afford. I have little hope that will happen but, in theory, that's what we have pledged to do as professionals: To watch out for the client's interest first.

The Ray Charles Foundation has asked Albany State University, in Georgia, to return $3-million in donations that it says were given “solely to help build a performing-arts center” in the late artist’s name, the Albany Herald reported. The singer, who died in 2004, gave Albany State $1-million in 2001 and $2-million in 2002. The university says the gifts were not restricted. The $1-million gift remains in a bank, and the $2-million was given to 125 students who were chosen as Ray Charles Presidential Scholars. A spokesman said the university is continuing to pursue additional funds for the center.

"your argument assumes that the public money would have been spent on the faculty salaries. It would not. "

Holy shit are you this dumb? The argument doesn't make that assumption at all. Let me give you a retard proof example. Private money = $100. Public money = $100. The school needs to spend $100 on repairs. If it spends $50 of private money on faculty loans, then it will have to dig into the public money fund to make the repairs. $50 of private funds for faculty loans. $50 of private funds for repairs. $50 of public funds for repairs. If it doesn't pay the faculty loans, then the entire $100 of private funds can be used for repairs. THUS MAKING $50 OF FACULTY LOANS COMES OUT OF PUBLIC FUNDS REGARDLESS OF WHICH FUND IT'S TRACKED TOO, BECAUSE MONEY IS FUNGIBLE AS I TOLD YOU THE FIRST TIME.

I think it safe to say you see the world "as is" and do not ask "why". I think it also safe to say you have no moral qualms with a law school being good at being a law school. You see no imperative for the schools to be good to their students and the public at large. Or, if you do, you certainly don't focus on such things. I understand the competition argument. The Race to the Top. Great, these schools have positioned themselves to retain top talent. My school did also. I just don't see how that ends up (for the most part; or at least simple majority) being beneficial for their graduates. When the line becomes too tenuous, it breaks. And you can't simply look at dollars and cents to determine what went in to the person's thinking when comparing an academic job to staying in BigLaw. That's the whole point; if you choose the first, you don't get the positives of the latter. Especially at the hands of someone else who is paying 6.8% interest. If you don't see what's wrong with this situation and instead see it as the Market playing out, there is no hope for you robot.

To anyone not in academia, use of the words 'top talent' in connection with any law professor sounds like quite the joke. No matter how many 'hoops' you've jumped through, being a law professor is an undemanding and, outside academia, fairly low status gig. I can't think of a single lawyer I know -- certainly none of my partners in biglaw -- who gives a rat's ass about any professor.

I can't imagine any biglaw partner who buys that some prof who bailed 2-3 years in is giving up a biglaw partnership to teach. This is as close to a pure emperor's new clothes situation as you can get. Of course, there's not much point in rubbing it in: the profs know just as well as anyone that no one is fooled. No one but 0 and 1Ls, anyway.

3:58 again. This is another reason the practicing bar is unlikely to get involved in law school reform. Who wants to even associate with those puffed up pretenders, and their pathetic attempts at relevant enterprise?

LP, you're doing great work with this site, and I hope a great many 0Ls rethink their futures. There's no hope for your colleagues, though.

I remember Orin Kerr bemoaning that law professors make 1/3 of what they could make in Biglaw.

I don't doubt it.

But I also know most corporate law folks would very much prefer the law professor lifestyle. The point being that even if law professor salaries were, say, $60k, there would be no shortage of qualified candidates.

@:36-- I never said I thought this was all okay. People on this site think that it's all about how you feel about something. Since you have sought to characterize my motivations, I can do the same with you. If UT raised money from alums to help defray the costs of student loans for people who are in trouble, it is a safe bet that you ( and I ) would think that a good use of funds. You wouldn't be decrying the effort as a misuse of public money, stealing from the heating bill or anything like that.

You've got the details regarding the forgivable loans wrong. The Mullenix settlement documents (which were publicly disclosed pursuant to a FOIA request) spelled out how they worked. The loans were forgivable annually at a specified rate (e.g., ratably over 5 or 10 years) provided that the employee remained at UT. If the employee left UT's employ (other than as result of a termination without cause), then the entire remaining principal became immediately due and payable. The moral commitment to stay a specified number of years was the condition for receiving the loan in the first place. (I believe the moral commitment was made not legally binding to avoid the arrangement from being considered an advance payment (e.g., signing bonus) that would have been immediately taxable upon even if it might have to repaid in the future.) When principal was forgiven, the forgiveness was treated for tax purposes as additional compensation, subject to ordinary income tax and employment taxes. So, while the arrangement clearly had a purpose of hiding the ball, it also served a tax purpose (to avoid immediate taxation on the "loan" amount).

A new poster, here. There's a huge difference between raising funds to help defray the costs of student loans for grads making $8 an hour and, as a result of that, don't have the ability to pay off student loans versus raising money for people earning north of $300K, who really don't need it.

Put another way, I have no problem with my tax funds helping people in homeless shelters who through no cause of their own, ended up in financially dire straits. I have a big problem with my tax dollars going to fund people making north of $300K who are already doing quite well and don't need my help. If you don't understand that there is a difference between the two, then let me know and I'll be happy to send you my bank account number. It could use some extra funds.

I remember Orin Kerr bemoaning that law professors make 1/3 of what they could make in Biglaw.

I don't doubt it.

------------------

I definitely doubt it. With the salaries that law professors make, they would have to be pretty eminent and business developing attorneys to triple it. Orin Kerr definitely doesn't have what it takes for that, and neither do the vast majority of profs.

"Not 12:35 but most recipients of public funding work on a use it or lose it basis so the public money is going to be spent either way."

You are 12:35 because you're making the same dumb mistake yet again. The fact that public funds will be spent doesn't alter the point that if the private funds are spent on faculty loans, and those private funds would otherwise have been spent on other necessities that come out of public funds (or aren't purchased at all), then that's effectively equivalent to having public funds pay for the faculty loans. I could prive another color by numbers chart for you if you want.

Congratulations, your brain is officially incapable of understanding a simple concept known as the fungibility of money. In the future please stfu because you're too dumb to communicate.

I don't recall bemoaning that law professors make 1/3 of what biglaw partners make. Indeed, what is there to "bemoan"? We law professors have truly incredible jobs. Teaching is super fun, researching and writing articles is tremendously enjoyable, advising students is rewarding, and on the side we get to litigate cases, write amicus briefs, consult, blog, speak on panels, testify before Congress, etc. It's an amazing job, especially for those of us who are able to work crazy hours at it. The fact that we're generally paid somewhere around 1/3 of law firm partners strikes me as irrelevant: When I had my last HLS reunion and was hanging out with my law school friends who are partners at big firms, there wasn't a moment when I thought I would rather have their jobs than mine.

This is an amazing post to me. And the most amazing thing is number of administrative positions making six figure or high five figure salaries. Page after page of them on the Texas Tribune website listed. And the amount of the tuition, $32,000 in-state tuition and $47,500 out of state. When I went to UT Law in the early 1970's the non-teaching staff consisted of two assistant deans, W.W. Gibson and T.J. Gibson, maybe a dozen clerical staff and the librarians. This took up maybe six offices and some typing desks and file cabinets wedged into to the faculty offices. Plus a half dozen adjuncts running specialty clinics and movement type attornies down in the basement. And even as an out of state student my tuition was so low that I can't even remember it. With upper middle class parents and a wife with a part time job, I paid for my bar review, and moved our household possessions back to California with money in my pocket. William Ockham

Just looking at the links Leiter's blog has a interesting item on it where he calls the row a "slave revolt," describes the payments as an effort to improve the quality of the faculty and seems shocked that the Dean got into trouble - in effect - this type of payment is "alright."

It depends on the purpose for which the "private [charitable] foundation" was established. As 11:31 puts it, money is fungible. Typically such a foundation has a broad set of purposes - to benefit the law school, etc. This means that it probably could have spent its money for example on student grants, or better facilities. However, typically the Dean of the law and various professors are on the board of such a foundation ...

this does of course raise a whole thicket of issues - self dealing (even if they recused themselves from their own personal loan decision - did they recuse from the entire policy), tax (is this still a charitable purpose), etc. It might even be criminal if the board was less than honest in its handling of the loans.

Using the term "retard" in argument is highly offensive - so offensive that if you were in my firm your career might be in jeopardy. You are to put it bluntly, uncouth and ill-suited to the legal profession.

As I understand it, the purpose was to provide salaries that would allow Texas to compete with eastern establishment schools who could offer more in the way of salaries than could a public university. Sure, if they are violating the law, that is a problem. But you cannot say the mere existence of the foundation shows illegality. It 's the same with the forgivable loans, which are legal and used in other contexts.

The money is fungible argument ignores the fact that giving money for a specific purpose is a common feature of all university life. What is the difference except dislike of the purpose of the donation?

We do not know what the "purpose" was. What we know is that the money came from the:

"University of Texas Law School Foundation was established in 1952 as an educational foundation to support The University of Texas School of Law.... The Foundation raises most of the endowments and privately-sponsored funds which support the Law School. The University of Texas School of Law currently lists its endowment at more than $150 million, ranking as one of the largest law school endowments in America."

Somehow it seems unlikely to me that the purposes of the foundation specifically included:

"to provide salaries that would allow Texas to compete with eastern establishment schools who could offer more in the way of salaries than could a public university."

Rather I think it was to provide funds for the law school for improvements, etc. and the Dean managed to wiggle the 'topping up of disclosed public salaries through a subterfuge' accepted as a falling within that heading. A big stretch I think.

"I don't recall bemoaning that law professors make 1/3 of what biglaw partners make. "

LOL. Are you kidding? A biglaw partner has to bring in MILLIONS of dollars of business annually to make those salaries. If they miss their target for one year they're out on their ass. Take a look at the misfits, idiots and scoundrels you have as professors, do you think they would instill the confidence required to develop that kind of business?

No.

Law Professors bring in money by thieving and lying, specifically on the employment stats they publish. That kind of crap doesn't fly in the real world.

@McK-- you may think it unlikely, but that is exactly what happened. Page Keeton set the foundation up 60 years ago because he was concerned about the gap in pay between faculty at UT and other high profile schools.

Earlier this afternoon the Austin-American Statesman published the following statement from the Law School Foundation:

“Recently there have been questions raised as to the manner in which The University of Texas Law School Foundation (the “Foundation”) directs funds to supplement salaries of faculty and deans of The University of Texas School of Law (the “Law School”). The precedent for that function of the Foundation began 60 years ago.

While Page Keeton was Dean of the Law School, a group of individuals made a decision to form a foundation to support the Law School. Keeton said that our faculty pay was wholly inadequate to place the law school in a competitive position with the other law schools in the country. One of Keeton’s first priorities was to improve the financial support given to the Law School.

Faculty salaries were far below salaries of the best law schools. And so, one of the areas where financial support was most needed was in relation to faculty salaries.

Through successive Deans, this process of support from the Foundation has continued. The only role of the Foundation is to support the Law School. The IRS code for non-profits requires that the Foundation not be involved in management and we have adhered strictly to this requirement.

The 5 year forgivable loan was made to Dean Larry Sager in 2009. The loan was approved by then Foundation President Robert Grable, with approval by the Foundation.

The Dean of the Law School is not empowered to write checks from the Foundation’s account. The Foundation routinely allocates available money to faculty members based on the Dean’s recommendations. The Foundation does not get involved in managing the Law School including such items as academic budgets and teaching loads.

In addition to providing salary supplements to the Dean and faculty members, the Foundation supports the Law School in numerous other ways, such as providing scholarship funds for students, producing the Law School alumni magazine, and in raising funds for a wide variety of Law School programs and initiatives. The Foundation will continue supporting the Law School in ways to enhance the experience of its students, faculty, and deans. As former Dean Page Keeton observed a half century ago, financial support is required in order for the Law School to remain competitive and among the top tier law schools in the nation. We believe that should be a common goal of the Foundation, the Law School, The University of Texas at Austin, and The University of Texas System.”